Maryland Special Needs Trust: Types, Rules, and How to Set One Up

Why a Special Needs Trust Exists

SSI sets a $2,000 resource limit for individuals. Medicaid's Aged, Blind, and Disabled pathway in Maryland sets it at $2,500. Any countable assets above those lines can suspend or terminate benefits.

A special needs trust holds assets outside of the beneficiary's countable resources. The trust's assets are managed by a trustee and used to pay for supplemental needs — things that SSI and Medicaid don't cover, like recreation, adaptive equipment, electronics, vacations, and personal care items. Because the beneficiary doesn't own or control the trust assets, those assets don't count against benefit eligibility limits.

The key constraint: trust distributions must go directly to vendors or service providers, not to the beneficiary as cash. Cash distributions are counted as income and can reduce or eliminate SSI payments.

Three Types of Special Needs Trusts in Maryland

First-Party (Self-Settled) Trusts

Funded with the beneficiary's own money — personal injury settlements, back-pay from Social Security, inheritances left directly to the individual. Under 42 U.S.C. § 1396p(d)(4)(A), a first-party trust may be established by the beneficiary, a parent, grandparent, legal guardian, or a court, and the beneficiary must be under age 65 at the time of creation.

The critical catch: first-party trusts include a Medicaid payback provision. When the beneficiary dies, the state can recover from the remaining trust assets an amount equal to the total Medicaid benefits paid during the beneficiary's lifetime. Whatever remains after the payback goes to designated remainder beneficiaries.

Third-Party Trusts

Funded entirely with other people's money — a parent's savings, grandparent's estate, life insurance proceeds payable to the trust. Third-party trusts have no Medicaid payback requirement. When the beneficiary dies, remaining funds pass to the family members or charities named in the trust document.

This is the structure most Maryland estate planning attorneys recommend for parents planning ahead. The trust can be established during the parents' lifetime (a living trust) or through their will (a testamentary trust). Either way, the parents' assets flow into the trust rather than being left directly to the child, which would disqualify them from benefits.

Pooled Trusts

Managed by a nonprofit organization — in Maryland, the primary option is the First Maryland Disability Trust (FMDT). Multiple beneficiaries' assets are pooled for investment purposes, but each beneficiary has an individual sub-account. Pooled trusts can accept both first-party and third-party funds.

Pooled trusts are practical for smaller amounts where the cost of establishing and administering a standalone trust would be disproportionate. A standalone trust might cost $2,500–$5,000 to establish plus $1,500–$3,000 annually in trustee fees. A pooled trust sub-account typically involves lower enrollment and annual fees because the nonprofit spreads its administrative costs across many participants.

Setup Costs

Expect to pay $2,500–$5,000 for an attorney to draft a standalone third-party or first-party special needs trust in Maryland. Complex situations — blended families, multiple beneficiaries, coordination with other estate documents — push costs higher. Annual trustee fees (if using a corporate trustee like a bank trust department) typically run $1,500–$3,000, often with a minimum annual fee regardless of the trust's balance.

For pooled trusts through FMDT, enrollment fees and annual administrative charges are generally lower, though they vary based on the account type and balance.

When to Use a Trust vs. an ABLE Account

Maryland ABLE accounts shelter up to $100,000 from the SSI resource limit with no trustee and no attorney fees. Annual contributions are capped at $20,000 in 2026 ($35,650 for employed beneficiaries under ABLE to Work). The account holder controls deposits and withdrawals directly.

Use an ABLE account for ongoing savings and employment income up to the $100,000 SSI exclusion. Use a special needs trust for amounts that exceed ABLE's capacity — a $200,000 inheritance, a six-figure personal injury settlement, a life insurance payout.

Many families use both: the ABLE account handles current savings and small regular deposits, while the trust holds the larger sums. A third-party trust can even be drafted to make distributions into the beneficiary's ABLE account, combining the administrative protection of the trust with the self-directed convenience of ABLE for day-to-day spending.

Getting It Right

The interaction between trust assets, ABLE accounts, SSI resource counting, and Medicaid spend-down rules is where families most often make costly mistakes — usually by depositing money directly into the wrong account or making a cash distribution that triggers an SSI overpayment.

The Maryland SSI at 18 & Adult Disability Benefits Guide covers the full sequencing of asset protection alongside SSI redetermination, Medicaid transition, and DDA waiver eligibility for Maryland families navigating the age-18 transition.

See more Maryland guides →